Term & Permanent Life Insurance:

Primary Life Options

Term Life

If you are looking for cheap quotes, but not cheap coverage, you might consider Term Life. Just as it sounds, term life covers you for a period of years—most often 20—after which you either renew the insurance, convert it, or simply let it expire and purchase something that meets your needs at that time. Because it has no cash value, that is, you can't just surrender it and take the money out of it, it is also the lowest priced insurance you can buy.

One important thing to keep in mind when considering a term insurance quote proposal is that the price may go up sharply at the end of the term. Furthermore, it will keep going up every year as it will become "annually renewable" unless you convert it to something else. Most companies allow you to convert a term to anything they have, but your premium will be adjusted to your age at that time. Thus, no matter what you do, the price will go up. Also, if your health changes—which it usually does in 20 years—you may be unable to purchase a new policy from any other company.

Advantages

In spite of its limitations, cheap term life insurance has other advantages. For one thing, you can add child riders. All child riders on any kind of policy are Term. However, between the ages of 18 and 25, the child can convert the rider to a whole life policy several times the value of the original rider, usually with no medical underwriting. Thus, you have your child insured in the event of death, but also provide him with an easy and inexpensive way to have his own life insurance when he comes of age.

Waivers and Riders

Term life can also be purchased with disability waivers and unemployment riders. With the latter, the premium is paid for a limited amount of time if you become unemployed. This does not last forever, but does give you opportunity to find a new job without losing your life insurance. The disability waiver, however, is extremely important, and, if you are under the age of 50, should always be included on a term policy. It means that if you should become disabled, the company will pay your premium—not just for the period of the term, but also the renewal premiums after the original term expires. In this way a term life actually gets converted to a whole life—minus the cash value—at the company expense. Of course, you have to be permanently disabled for that to happen

Buy Term and Invest the Difference

In the mid eighties, several companies marketed term life under the slogan "buy term, invest the difference." If you actually do invest the difference—via a retirement plan, 401K, Roth IRA, or even just a high return CD, you will not need the Term policy for final expenses in later life. You can name a beneficiary on your investments and can thus ensure that final expenses, taxes and outstanding bills are taken care of. If you have investment assets that you intend to pass on to your beneficiaries, you won't need life insurance at that time.

Whole (or Permanent) Life

Whole life is the opposite of term. Because it has a cash value, you are actually investing in a plan that can give you a cash flow in later years. The premium rates on whole life are much higher than on term, but because the policy is also building a cash value, whole life prevents you from "buying term and spending the difference," which is what far too many people did with old term policies. The same riders as those available on a term policy can also be purchased with whole life. Other than riders which may drop off at age 65—such as a disability waiver—your premium will be unchanged for your entire life, and the face value will pay for your death to age 100 or—with some newer policies—120. If the policy covers you to age 120, there will be no premium after age 100.

No (or Low) Load

Whole life is not expensive if purchased when you are younger. If, however, you have waited until your mid 50s to realize you need your own life insurance, the cost will be significantly higher. An option available in some states is "no load" or "low load." A “no load” policy is simply a policy that does not include the cost of agent commissions and other initial policy fees. Of course, the agent will still be paid—by you. When the agent writes or services your policy, you will pay him or her directly according to a servicing rate table established by the company. If you can find one, a no load policy allows your cash value to build more quickly since more of your money is going into the policy from the start.

Joint Life

One other option, available on either Term or Whole life, is the joint life which can be purchased as either first to die or second (last) to die. These policies insure two or more people on the same policy with a premium that is more expensive than insuring just one, but less expensive than having two policies. In the first to die, the beneficiary receives the proceeds when the first insured person dies, and the policy is terminated. The assumption is that the second person will have the proceeds of the policy and will not need life coverage him or herself. In second to die, the face value is paid when the second or last insured person dies. These policies are often used to create a large inheritance or legacy.

Company Ratings

While reviewing the companies that are presented to you, remember that the quality of the policy and finding the lowest prices, are not the only considerations. It is also very important to know and understand their financial ratings. A.M. Best and Standard & Poor's are non biased rating services you can use for this research. Insurance Information Institute is another authoritative resource on this and other similar insurance topics.